Mergers and acquisitions advisors are constantly seeking out business owners who would like to sell their businesses, but sometimes red flags prevent a sale from taking place.
B2B CFO, a firm that provides chief financial officer services to owners of mid-market, privately-held companies, has developed an M&A Incubator Program to help business owners whip their companies into shape and ready them for sale.
“There was a niche of companies (that M&A advisors) cannot help because the companies are not ready for a transaction,” said Jerry Mills, founder and chief executive officer of B2B CFO. “There’s typically only about six or seven things that need to be done to help a company get ready for an M&A transaction.”
The M&A Incubator Program is part of the company’s B2B Exit division, through which Mills last year published “The Exit Strategy Handbook” to guide businesses step-by-step through preparing a business for sale.
The M&A Incubator is a self-guided software program, in beta testing now, which follows similar steps and principles. In this way, M&A advisors can develop potential clients and business owners can increase the sale price of their business through a virtual “incubator” process.
There are eight B2B CFO partners in southeastern Wisconsin, who are helping to implement the nationwide rollout of the M&A Incubator by the end of this year.
B2B, which is based in Phoenix and has more than 200 partners in 45 states, plans to approach M&A firms nationwide and partner with them, Mills said. The M&A firm would introduce B2B CFO partners to clients who aren’t ready to complete a transaction, and B2B would help the client complete the software program and then potentially complete a transaction with the M&A firm.
“These people are just being dropped, they’re not being helped, so we figured out a way to identify them and help them out,” Mills said. “It gives us more business. We go to a client with a short list of specific things that they want done and the M&A firm wants done, because the client obviously wants to sell their business but they can’t.”
David Buslee, a partner in B2B CFO’s Delafield office, said the software program helps owners track the value of the business and the qualitative factors that impact the value, such as having a business plan, the business performance relative to that business plan, having a marketing plan and other key qualities that increase the value of a business and take the risk out of owning it.
“It’s a virtual way of incubating a prospect for a private equity investment or an M&A transaction,” Buslee said. “(And) it helps educate clients on how they can do things to increase the value of their business as well as the cash flow of their business.”
M&A advisory firms could look at 1,000 different candidates they are interested in buying, but only four of those have all the necessary factors to immediately complete a transaction, he said.
Using the M&A Incubator, “(M&A firms) can either increase the number of companies they look at and expand the pool…or they can fix the ones that are close but not quite,” Buslee said. “Now we’ve put them into this process, they’ve fixed all the issues that we had, now we can go forward with our process.”
It can take between three and five years for a firm to complete its exit process, since most transactions include three years of audited financial statements, and the owner may need to transfer a large amount of information to managers and successors or bring on new talent to fill any gaps.
While the M&A Incubator Program is still in the beginning stages and Buslee isn’t officially working with any Milwaukee area private equity firms, “we’ve approached a couple of prominent (Milwaukee area) M&A firms who are interested in joining that rollout process,” he said.
More thoroughly preparing a business owner for a transition and working with local M&A firms can also help assure that the selling company doesn’t go through a dramatic change in the acquisition process, he said.
“The money stays here, the jobs stay here and the businesses stay here as they transition to new owners,” Buslee said.